(CNSNews.com) – A $125-million settlement from the second largest Medicare Fraud case in history is being held up by the IRS, according to Virginia Attorney General Ken Cuccinelli.

A Virginia Medicaid Fraud Control Unit (MFCU) investigation, which found that Abbott Laboratories illegally marketed the seizure drug Depakote for non-approved uses, was concluded when a settlement was reached in September 2011. A final court order was issued in October 2012.

However, $125 million owed to Virginia as part of the plea agreement has yet to be paid, and federal officials place the blame on the IRS.

“Federal officials have refused to release approximately $125 million that is owed to Virginia from a 2012 Medicaid fraud case Attorney General Ken Cuccinelli’s office investigated,” reads a statement from Cuccinelli’s office.

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“Federal officials have said that the IRS has refused to properly fill out post-case paperwork for almost a year, which is holding up the disbursement intended for Virginia law enforcement,” the statement said.

According to Cuccinelli’s office, the IRS and federal government “have known for nearly two years” what Virginia’s fraud unit was owed out of a $198.5 million asset forfeiture, which was part of Abbott’s plea agreement.

The Treasury Department initially blamed the federal budget sequester for why Virginia has not received the money, Cuccinelli said, despite the fact that the funds come from the private sector, to be paid by Abbott Laboratories.

“Now the hold-up is the IRS, which, according to the Treasury Department, refuses to complete its paperwork so the money can be properly distributed,” Cuccinelli said. “The exact amount of the forfeiture was known since September 2011 and finalized in a May 2012 plea agreement.”

“It doesn’t take a year to complete the paperwork,” he said.

Cuccinelli implied that he believes the delay may be related to the recently uncovered scandal at the agency, where conservative groups were targeted and had their applications for non-profit status delayed for up to three years.

U.S. currency. (AP Photo)

“For months, we thought this was just incompetence by the IRS, but with its refusal to properly fill out fairly simple paperwork for an entire year, we are left to wonder if this involves more deliberate motives,” he said. “Virginians need to know that for eight months the administration has been withholding money that is supposed to be used to protect first responders’ lives.”

The attorney general said he intends to use the money for police departments, equipment, training and gang and gun crime reduction programs.

“During the eight months the Treasury Department has been withholding the money, they have been depriving Virginia law enforcement of tools to make their jobs safer,” he said. “The interest alone on Virginia's share of the money in those eight months would have totaled more than a half-million dollars. That interest could have purchased more than 1,000 bulletproof vests for police officers and sheriffs’ deputies.”

The investigation into Abbott Laboratories found that the company was illegally marketing the prescription drug Depakote to treat dementia patients in nursing homes, and for schizophrenia. The drug is intended to treat epileptic seizures.

At the time of this story, the IRS did not respond to a request for comment.